Re Plutus Payroll Australia Pty Ltd

[2017] NSWSC 1854

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Plutus Payroll Australia Pty Limited [2017] NSWSC 1854

Hearing dates:

12, 13 December 2017

Date of orders:

14 December 2017

Decision date:

14 December 2017

Jurisdiction:

Equity - Corporations List

Before:

Brereton J

Decision:

.Statutory demand varied; proceedings stayed pending related criminal committal proceedings, and provisional liquidators appointed.

Catchwords:

CORPORATIONS — Winding up – Statutory demand – offsetting claim – where funds frozen by proceeds of crime order – held, not a sufficient other reason under s459J(1)(b) – where there is an arguable and genuine offsetting claim under s 8AAZL of the (CTH) Taxation Administration Act 1953 ­– held, claim may be offset pursuant to (CTH) Corporations Act s 459H(4)

 

CORPORATIONS — Winding up – Appointment of provisional liquidator – where prima facie case of insolvency and concern assets may be at risk –related proceeds of crime proceedings – held, it is fair and just to balance the competing interests to appoint a provisional liquidator be appointed with conditions.

  CORPORATIONS — Winding up –Application for stay – whether proceeding should be otherwise stayed until the conclusion of the pending committal proceedings – held proceedings should be stayed.

Legislation Cited:

(CTH) Corporations Act 2001 s 459H, s 459J
(CTH) Criminal Code 1995 s 135.4(3)
(CTH) Income Tax Assessment Act 1936
(CTH) Proceeds of Crime Act 2002
(CTH) Taxation Administration Act 1953
(NSW) Building and Construction Industry Security of Payments Act 1999
(NSW) Evidence Act 1995 s 128

Cases Cited:

Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates Pty Ltd (1984) 4 FCR 428
Ceasar v Sommner [1980] 2 NSWLR 929
Clyne v The Commissioner of Taxation (1981) 150 CLR 1
Commissioner of Australian Federal Police v W [2016] NSWSC 683
Commissioner of the Australian Federal Police v Zhao (2015) 255 CLR 46; [2015] HCA 5
Deputy Commissioner of Taxation v Broadbeach Properties (2008) 237 CLR 473
Douglas Aerospace Pty Limited, In the matter of [2015] NSWSC 167
Golden City Car & Truck Centre Pty Ltd v Deputy Commissioner of Taxation [1999] FCA 922; (1999) 42 ATR 379
Plutus Payroll Pty Limited, In the Matter of [2017] NSWSC 1360
Jefferson Ltd v Bhetcha [1979] 1 WLR 898
Lee v The Queen (2014) 253 CLR 458; [2014] HCA 20
McMahon v Gould (1982) 7 ACLR 202
Ransley v Commissioner of Taxation [2016] FCA 778
Seller v Commissioner of Taxation [2013] FCA 1373; (2013) 308 ALR 376
Smith v Selwyn [1914] 3 KB 98
X7 v Australian Crime Commission (2013) 248 CLR 92; [2013] HCA 29

Category:

Principal judgment

Parties:

Deputy Commissioner of Taxation (Plaintiff/Respondent)
Synep Pty Ltd (ACN 611 299 328) (Eleventh Defendant/Applicant)

Representation:

Counsel:
J M White with K Petch (Plaintiff/Respondent)
R Seiden SC with A Gerard (Eleventh Defendant/Applicant)

  Solicitors:
Australian Government Solicitor (Plaintiff/Respondent)
O’Loughlin Westhoff Lawyers (Eleventh Defendant/Applicant)

File Number(s):

2017/ 169447

Judgment (EX TEMPORE)

14 December 2017

1. The substantive proceedings before the Court relevantly comprise the application of the plaintiff Deputy Commissioner of Taxation for an order that the eleventh defendant Synep Pty Limited (Synep) be wound up. The Deputy Commissioner's application against eleven other defendants has previously been heard and determined: see In the Matter of Plutus Payroll Pty Limited and others. [1] As against those defendants, the proceedings were undefended. Synep, however, opposes the application. The Deputy Commissioner relies on the just and equitable ground and on actual insolvency as grounds for making a winding up order.

   1. [2017] NSWSC 1360.

2. The hearing of the proceedings against Synep was set down to commence yesterday, but was vacated at an earlier date, due to the pendency of interlocutory applications, brought first by Synep, and subsequently by the Deputy Commissioner, which raised for determination a number of interrelated issues. The first, which was raised by Synep’s interlocutory application, is whether the proceedings should be stayed pending the determination of criminal proceedings against a number of persons, including relevantly Messrs Cranston and Onley, who are directors of Synep, and companies of which they are the controllers, which are contributories of Synep. The second, which is raised by the Deputy Commissioner’s interlocutory application, is whether, if there is to be such a stay, a provisional liquidator should be appointed in the meantime. The third, which is raised by a further interlocutory application by Synep, is whether a creditors' statutory demand served by the Deputy Commissioner on Synep since the commencement of these proceedings, with a view to the Deputy Commissioner in due course being able to invoke the presumption of insolvency, should be set aside. Although, in the earlier decision,[2] it was held that it was open to the Deputy Commissioner to rely on a creditors' statutory demand served after the commencement of the winding up proceedings, it is common ground that Synep is not bound by that decision, and the opportunity to argue that point remains available to it on any application to amend the originating process, or on the hearing of the originating process. But that question does not arise for consideration now, the only present point being whether the statutory demand should be set aside on one of the grounds permitted by (CTH) Corporations Act 2001, ss 459H or 459J.

   2. In the Matter of Plutus Payroll Pty Limited and others [2017] NSWSC 1360.

3. It is convenient to deal first with the application to set aside the creditors' statutory demand.

Creditor’s Statutory Demand

4. The demand, which was admittedly served on Synep on 9 November 2017, is dated 6 November 2017 and demands payment of the amount of $559,730.81, described in the schedule to the demand as follows:

Running balance account deficit debt as at 6 November 2017 in respect of amount due under the BAS provisions as defined in ss 995-1(1) of the Income Tax Assessment Act 1997 ("the ITAA 1997") [BAS provisions include, generally: The goods and services provisions, the PAYG withholding provisions, PAYG instalments provisions, the fringe benefit tax instalment provisions, and the third company instalment provisions], estimates due under division 268 in schedule 1 to the Taxation Administration Act 1953 ("the TAA 1953"), division 8 of part VI of the Income Tax Assessment Act 1936, ("the ITAA 1936"), and the general interest charge payable under section 8AAZF of the TAA 1953 and part IIA of the TAA 1953, calculated up to and including 5/11/2017, being a debt due and payable by the company pursuant to section 8AAZH of the TAA 1953.

5. The demand was verified by the accompanying affidavit of Aris Zafiriou sworn on 6 November 2017, in which he deposed that the debt was due and payable and that he believed that there was no genuine dispute about its existence or amount.

6. The application to set aside the demand was filed on 30 November 2017, which would apparently be the last day of the 21-day period in which such an application could be made. But it was not suggested that it was other than within time.

7. The supporting affidavit of Jonathan Edward O'Loughlin of 30 November 2017 specifically refers, at paragraph 29(a), to Corporations Act s 459J(1)(b) – being the provision that permits a statutory demand to be set aside "for some other reason". However, the affidavit discloses facts – including the availability of a credit of $363,631.70 – which are sufficient to support a contention that for the purposes of Corporations Act, s 459H, there is an offsetting claim within that section.

8. The subject matter of the demand is, as appears from the description in the schedule to which I have referred, tax debts which are evidenced by assessments, or by estimates based on self-assessments, which are conclusive and not capable of dispute. It was not suggested that Synep had raised a "genuine dispute" as to the existence or amount of the indebtedness. However, the circumstance that a tax debt may be indisputable, for the reasons explained by the High Court of Australia in Deputy Commissioner of Taxation v Broadbeach Properties,[3] do not mean that it is not open to a debtor to raise an offsetting claim. In In the matter of Douglas Aerospace Pty Limited, [4] I rejected a submission that it was inconsistent in principle with Broadbeach to admit the availability of a true offsetting claim. The submission was that although Broadbeach concerned a s 459G application based on an alleged genuine dispute, as a matter of logic and the symmetrical structure of s 459H(1), the same reasoning must apply where the applicant relied on an offsetting claim. Thus, just as a genuine dispute in relation to a final debt was not a genuine dispute in relation to the interim debt founded on a building adjudication, so an offsetting claim in relation to the final debt was not an offsetting claim in relation to the interim debt, with the result that in both cases the operation of s 459G was excluded.

   3. (2008) 237 CLR 473

   4. [2015] NSWSC 167.

9. In answer to that submission, I said:[5]

I do not agree. There is nothing inconsistent with holding that although a debt is beyond dispute, a demand for it may be met by an offsetting claim. Once it is appreciated that this encompasses any offsetting claim, which need have no connection with the debt, the special characteristics of the debt – including any legislative policy reflected in the statute that creates it – are not relevant to the availability of an offsetting claim [cf John Shearer Ltd v Gehl Co]. About such offsetting claims, Broadbeach is silent – unsurprisingly in the context where the Commissioner of Taxation is the creditor, it does not address at all the question of “offsetting claim”. The judgment of the Court of Appeal in Diploma provides no support for the defendant’s submission in the present case that Broadbeach precludes even an offsetting claim for damages for negligence or breach of contract; to the contrary, it accepts that such offsetting claims, if genuine, may be invoked to set aside a demand founded on a judgment debt arising from an adjudication.

Accordingly, the position that a genuine cross-claim for damages for negligence or breach of contract or restitution will result in a statutory demand being set aside or varied is undisturbed by Diploma. Thus while a demand for an amount adjudicated under BACISOPA is not amenable to a “genuine dispute” under s 459H(1)(a), it remains vulnerable to a genuine “offsetting claim” under s 459H(1)(b).

5. [2015] NSWSC 167 (at [95]-[96]).

10. In that passage, I said that it was unsurprising that Broadbeach was silent on offsetting claims in a context where the Commissioner of Taxation was the creditor, because the notion that the Commissioner of Taxation might owe money to a debtor or taxpayer did not then occur to me. That precise point arises in the present case. But, in my view, the same reasoning applies: the availability of a genuine offsetting claim is one enshrined in Corporations Act s 459H; that is so regardless of the connection of the offsetting claim with the debt the subject of the demand; and there is nothing, as it seems to me, in the taxation legislation, or in Broadbeach, which permits, let alone requires, a Court to disregard a genuine offsetting claim.

11. In Corporations Act, s 459H, offsetting claim is defined to mean:

A genuine claim that the company has against the respondent by way of counterclaim setoff or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).

12. The Court is required by s 459H to calculate the substantiated amount of the demand as the admitted total (being the amount of the debt that is not the subject of genuine dispute) less the offsetting total (which is the amount of any offsetting claim, so defined). The Commissioner as a creditor is not exempted from exposure to offsetting claims.

13. Before I consider the offsetting claim, it is convenient next to dispose of the "some other reason" ground, under Corporations Act, s 459J(1)(b).

14. Aside from what will be covered under the caption of “The Offsetting Claim”, such “other reason” was said to be provided by an accumulation of circumstances, but fundamentally that the assets of the company were subject to restraining by orders under the (CTH) Proceeds of Crime Act 2002, and that this applied in particular to its liquid assets of approximately $54,000 in a bank account, so that the company was effectively restrained at the suit of the Commonwealth from using its assets to pay the debt to the person that was claiming payment of the debt, namely the Commonwealth, which rendered it unreasonable to demand payment while the Proceeds of Crime order remained in force. Further, Synep made an application to the Commissioner to defer or waive the taxation debt, at least pending the outcome of the Proceeds of Crime Act proceedings, and although that request had been rejected shortly before the matter came on for hearing, it may be that that rejection was amenable to some form of administrative or judicial review.

15. In my view, those circumstances do not amount to some sufficient “other reason” to set aside the demand. First, the Proceeds of Crime Act order does not restrain all of the assets of Synep, but only its bank account, in which there is about $54,000. Secondly, that $54,000 would be manifestly insufficient to satisfy the demand even if released, and even if the demand were to be reduced by the amount of the offsetting claim. Thirdly, it is open to Synep to make application under the Proceeds of Crime Act, s 24, for assets to be released in order to permit it to pay its debt. Fourthly, the possibility that there might be an as yet unidentified basis for reviewing the Commissioner's rejection of the deferral/waiver request does not establish any ground to set aside the demand, or otherwise to defer the enforcement of a debt which, by statute, is made enforceable regardless inter alia of the pendency of review proceedings.

16. Accordingly, I do not accept that there is “some other reason” – apart from the offsetting claim to which I now turn – to set aside the demand.

Offsetting Claims

17. Synep raised two "offsetting claims". The first was the $54,000 in its bank account, which is the subject of the Proceeds of Crime Act orders. The mere fact that those funds are, for want of a better word, "frozen", does not give Synep any claim or right of setoff against any person in respect of that sum. They remain Synep's property, albeit that dealing with them is precluded. No offsetting claim arises in that respect.

18. However, the sum of $363,631.70, being the credit to which Synep is admittedly entitled against the Commissioner of Taxation, raises much more complex questions.

19. The Commissioner claims to be a creditor of Synep not only in respect of the amounts referred to in the creditors' statutory demand, but also for a further sum of $2,556,654.30 pursuant to a "special assessment" issued on 24 July 2017 – which, however, is admittedly not payable until 28 February 2018. Although it is not entirely clear exactly how the credit arises, it seems that it arises from payments made in or about April of this year, which are recorded in the Commissioner's statement of account for Synep.

20. There is no dispute that Synep is entitled to credit in the amount to which I have referred. However, the Commissioner has applied that credit not to the debts the subject of the demand, but against the special assessment which, as I have said, will not become payable until 28 February 2018. The question is whether in those circumstances Synep has an “offsetting claim” for that amount, bearing in mind that the definition includes a setoff, even if it does not arise out of the same transaction or circumstances as the debt to which the demand relates.

21. This appears to turn on the provisions of Part IIB of the (CTH) Taxation Administration Act 1953. “Tax debt” is defined to mean, "A primary debt tax or a secondary tax debt" and "primary tax debt” is defined to mean “any amount due to the Commonwealth directly under a taxation law ... including any amount that is not yet payable" (s8AAZA). It follows, as it seems to me, that the debt the subject of the special assessment is within the definition of primary tax debt and thus of tax debt, notwithstanding that it is not yet payable.

22. Division 3 of Part IIB then deals with the treatment of payments, credits and Running Balance Account (RBA) surpluses. By s 8AAAZL(1), it is explained that the division sets out how the Commissioner must treat, inter alia, “(b) a credit (including an excess non-RBA credit) that an entity is entitled to under a taxation law”. Sub-s (2) provides that the Commissioner must treat each such amount using the method set out in s 8AAZLA or s 8AAZLB, but not both.

23. Section 8AAZLA sets out "Method 1 – allocating the amount first to an RBA", while s 8AAZLB sets out "Method 2 – applying the amount first against a non-RBA tax debt". It will be necessary to return to those provisions. Section 8AAZL(3) provides:

However, the Commissioner does not have to treat an amount using either of those methods if doing so would require the Commissioner to apply the amount against the tax debt (a) that is due but not yet payable ...

24. As has been explained, the special assessment may be regarded as a tax debt that is due but not yet payable. That it is due seems to follow from Clyne v Commissioner of Taxation. [6]

    6. (1981) 150 CLR 1 at [40].

25. Method 1, referred to in s 8AAZLA, permits the Commissioner in the manner he or she may determine, to allocate the amount to an RBA of the entity, in which case the Commissioner must then apply the amount against tax debts that have been allocated to that RBA and general interest charge on such debts, and any balance constitutes “an excess non-RBA credit”. The Commissioner does not claim to have used method 1.

26. Method 2 set out in s 8AAZLB, permits the Commissioner in the manner he or she may determine, to apply the amount against a non-RBA tax debt of the entity. It is that provision which the Commissioner purports to have utilised in this case.

27. Section 8AAZLE provides that in doing anything under the Division, the Commissioner is not required to take account of any instructions of any entity. Accordingly, the request of Synep that the credit be applied against the debts referred to in the statutory demand does not require the Commissioner to do so.

28. Division 3A then provides what is otherwise to happen in respect of any surplus. Section 8AAZLF(1) provides that the Commissioner must refund to an entity so much of an RBA surplus or a credit as the Commissioner does not allocate or apply under Division 3. Sub-s (2) provides that the Commissioner is not required to do so by reason of a payment in respect of an anticipated tax debt unless the entity later requests in the approved manner that the Commissioner do so – in which event the Commissioner must refund so much of the amount as is not allocated under Division 3.

29. The critical and difficult question is the impact of section 8AAZL(3)(a) (referred to above) in this context. The Commissioner contends that it means that even where use of method 1 or method 2 would require the Commissioner to apply the amount against a tax debt that is due but not yet payable, the Commissioner although not bound to (“does not have to”) do so retains a discretion to apply those methods with that result.

30. Division 3 must be construed as a whole and in the context of the surrounding provisions. As it seems to me, Division 3 provides a mandatory structure about which the Commissioner does not have discretion, and requires the Commissioner to deal with credits in a certain way. Sub-s (2) of 8AAZL, referred to above, obliges the Commissioner to use method 1 or 2 but not both. Sub-s (3) then says that the Commissioner is not bound to (“does not have to”) use those methods, if it would require application against a debt that though due is not yet payable. It seems to me at least arguable that sub-s (3) means that sub-s (2) does not apply in the three circumstances (a), (b) and (c) to which sub-s (3) refers. The words "does not have to" are simply a form of expression of the opposite of "must” in sub-s (1). In other words under sub-s (2), the Commissioner has to treat each amount using method 1 or 2; but under sub-s (3), the Commissioner does not have to treat the amount under those two methods. They constitute a dichotomy.

24. It would be wrong to regard s 8AAZLA(1) and/or 8AAZLB(2) as conferring a discretion independent of the mandatory requirement of 8AAZL(2) as to how a debt is to be dealt with. The word "may" in each of 8AAZLA(1) and 8AAZLB(1) means, essentially, that if the Commissioner elects for method 1 then that involves doing what is specified in 8AAZLA(1); similarly, if the Commissioner elects for method 2 then that involves doing what is referred to in 8AAZLB(1). Both of them depend on and descend from the Commissioner's obligation under 8AAZL(2).

25. Accordingly, it seems to me at least well arguable that Division 3 does not authorise the application of a credit against a debt that is due but not yet payable. Even if it does authorise the application of a credit in that way, it would remain arguable that until the debt to which it is applied becomes payable, the taxpayer still has a set-off against the Commissioner, albeit one that does not arise out of the same transaction or circumstances as the debt to which the demand relates. As will be apparent from the language which I have used, on an application under Corporations Act, s 459G, to set aside or vary a demand, the Court does not necessarily by any means decide questions of law that arise on a final basis. The question is whether the offsetting claim is arguable or genuine. In my judgment, there is a genuine offsetting claim in respect of the sum of $363,000 to which I have referred. In those circumstances, the appropriate outcome of the s 459G application is that the demand be varied by reducing it by the amount of the offsetting claim, and declaring it to have had effect as so varied since it was made.

Stay Application

33. I turn then to the application for a stay. That application is fundamentally founded on the proposition that it would be unjust to require Synep to mount its defence of the winding up proceedings in circumstances where criminal proceedings, which depend on the same matters of fact as are relied on for the winding up order, are pending against Synep's directors whose evidence would be essential to Synep's defence, so that if the winding up proceedings were to proceed at this stage, either as a matter of practicality the directors would have to waive their right to silence and potentially prejudice their defence in the criminal proceedings, or Synep would be placed in the position of having to defend the proceedings without relevant evidence.

34. It is not so long ago that the law was that a plaintiff against whom a felony had been committed by the defendant could not make the felony the foundation of a civil cause of action unless and until the defendant had been prosecuted, or a reasonable cause had been shown for his or her not having been prosecuted. [7] For those purposes, what was required was not merely the initiation but the completion of the prosecution. [8] However, by the late 1970s, that rule was regarded as no longer applicable, and indeed in some cases was said to be “dead and buried”. It was replaced by the view that a Court had a general discretion to stay civil proceedings in the interests of justice if criminal proceedings were pending against the defendant involving the same issues. [9] Under that general discretion, Courts seemed much more ready to permit parallel civil proceedings to go ahead, notwithstanding that criminal proceedings were pending. [10]

    7. See Smith v Selwyn [1914] 3 KB 98 at [106].

    8. See McMahon v Gould (1982) 7 ACLR 202 at [203].

    9. See Jefferson Ltd v Bhetcha [1979] 1 WLR 898, and in this State, Caesar v Somner [1980] 2 NSWLR 929, and McMahon v Gould (supra).

    10. See for example the cases referred to above of Caesar v Somner and McMahon v Gould; see also, Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates Pty Ltd (1984) 4 FCR 428, and Golden City Car & Truck Centre Pty Ltd v Deputy Commissioner of Taxation [1999] FCA 922; (1999) 42 ATR 379

35. However, still more recent times have seen a greater tenderness to the right to silence in criminal proceedings, and a more realistic appreciation of the practical impact of the pendency of parallel civil proceedings on that right to silence. Although this shift in emphasis follows the decisions of the High Court in X7 v Australian Crime Commission [11] and Commissioner of the Australian Federal Police v Zhao,[12] its application in circumstances such as the present is perhaps best illustrated and expounded by two first instance judgments of the Federal Court of Australia, that of Robertson J in Seller v Commissioner of Taxation,[13] and that of Jagot J in Ransley v Commissioner of Taxation. [14]

    11. (2013) 248 CLR 92; [2013] HCA 29.

    12. (2015) 255 CLR 46; [2015] HCA 5.

    13. [2013] FCA 1373; (2013) 308 ALR 376.

    14. [2016] FCA 778.

36. In Seller, Robertson J pointed out that by giving evidence in taxation appeals which the applicants sought to have stayed pending the outcome of the criminal proceedings against them, they would no longer be able to decide the course to adopt in the criminal proceedings only by reference to the strength of the Crown case as revealed by the material provided before or at the trial – which would fundamentally alter the accusatorial judicial process – and that given that the onus of proof was on the applicants in the taxation appeals, for the applicants not to give evidence in their tax appeals would almost inevitably lead to those appeals being dismissed and the assessments against them confirmed. This was so, notwithstanding that there was a recognisable distinction between the allegations in the criminal proceedings and the subject matter of the taxation appeals. As his Honour said, that would separate the two proceedings at too great a level of abstraction. [15]

    15. [2013] FCA 1373; (2013) 308 ALR 376, in particular at [43] and [44].

37. In Ransley v Commissioner of Taxation, Mrs Ransley was the appellant in a tax appeal. Her husband Mr Ransley was the defendant in criminal proceedings. Her Honour accepted that Mr Ransley's evidence was reasonably essential to Mrs Ransley's tax appeal. Deciding to stay the tax appeal pending the determination of the committal proceedings against Mr Ransley, at which time the position could be reviewed, her Honour observed[16] that the importance attributed to the role of the right to silence in the criminal prosecution had changed since such cases as Cameron's Unit Services and Golden City Car, and that in the light of recent authority – in particular, X7 and Zhao, it could not be said that the relevant issue was merely the conflict of interest of an accused person in deciding whether to advance a civil cause of action at the expense of a right to silence in a criminal prosecution, or that the law would not act to relieve that conflict unless some prejudice, apart from intrusion into the right to silence itself, could be demonstrated. Her Honour pointed out, with reference to Zhao, that the protections afforded by certificates under (NSW) Evidence Act 1995, s 128 (for example), were not complete because, quoting Adamson J of this Court in Commissioner of Australian Federal Police v W,[17] such certificates do not necessarily avoid "disclosure of what occurs in the civil proceedings through misunderstanding, inadvertence or mishap to those involved in the prosecution”. [18]

    16. Ransley v Commissioner of Taxation [2016] FCA 778 (at [24] – [25]) (Jagot J).

    17. [2016] NSWSC 683.

    18. Commissioner of Australian Federal Police v W [2016] NSWSC 683 at [59].

38. The possibility for such misunderstanding, inadvertence or mishap is manifest from what happened in Lee v The Queen,[19] and even protections, where they exist, against the derivative use of material obtained under compulsion are not foolproof. In any event, a certificate under s 128 does not prevent derivative use.

    19. [2014] HCA 20; (2014) 253 CLR 458.

39. As it seems to me, the decisions in Seller and Ransley manifest a principle that there is relevant prejudice from the pendency or continuation of civil proceedings if their defence would, as a matter of practicality, require the criminally accused to confine or constrain the way in which his or her defence might be conducted, or expose him or her to cross-examination on matters which might directly or indirectly assist the prosecution, or expose further lines of investigation and inquiry against the accused.

40. In this case, it is not in issue that the matters relied on as founding the just and equitable ground for winding up not only overlap, but are substantially the same factual matrix as, those which underpin the criminal charges against Mr Onley and Mr Cranston. The charges have not been finalised, in the sense that what will actually be presented at the committal, let alone what might be the subject of any indictment, remains open to amendment and refinement; but so far as they go, they are charges under (CTH) Criminal Code 1995, s 135.4(3) (conspire to cause loss) that each defendant did, between June 2016 and the present at Sydney, conspire with other persons with the intention of dishonestly causing a loss to a third person, namely the Australian Taxation Office. The facts which underpin the just and equitable ground, as asserted by the Commissioner, were described by me in the earlier judgment as being, "that the companies were participants in a syndicate with the purpose of not paying or understating large taxation obligations to the Commonwealth”.

41. It is necessary to observe at this point that Messrs Onley and Cranston are the only directors of Synep; that the only shareholders in Synep are companies of which they in turn are the controllers; and that in that way, they are the relevant controlling minds of Synep, and the persons with any ultimate beneficial interest in Synep.

42. It seems to me plain that the defence of the winding up proceedings on the grounds to which I have referred – that is, the just and equitable ground – would necessarily require Messrs Cranston and Onley to disclose the matters which they would rely on, in opposition to the allegations which lie at the heart of the criminal proceedings as much as they do of the winding up proceedings, and thus disclose their defences at a time other than of their choosing in the criminal proceedings, and so potentially confine or constrain their ability to present defences uninfluenced by what they might have had to say on any previous occasion, and expose them to cross-examination about the very matters with which they stand criminally charged. For reasons to which I have already adverted, a certificate under Evidence Act, s 128, would not be a complete prophylactic from the prejudice that that could involve, and in any event, would not extend to their evidence-in-chief.

43. Accordingly, it seems to me that to require Synep to defend the winding up proceedings at this stage would require it to do so in circumstances where either it would be deprived of the most important source of evidence that might be adduced in its defence, or Messrs Onley and Cranston would have to forgo their right to silence in the criminal proceedings.

44. The Commissioner did not oppose – though he did not consent to – a stay, insofar as it related to the just and equitable ground, but submitted that it should be confined to that ground and not extend to the proceedings insofar as they relied on insolvency. However, it would be unusual to stay proceedings on one ground and not on the other, although it seems to me that it would be possible in a case such as the present to order that the question whether the company should be wound up in insolvency be determined separately and before the other issues in the proceedings. Again, because there are always discretionary issues on a winding up application, that would not necessarily be a complete solution, but it might minimise any prejudice.

45. It is relevant in that respect that prima facie there appears to be a strong case of insolvency. I say that, fully conscious that part of the debt relied on (being the special assessment) is not yet payable, and is also subject to objection, and that the creditor's statutory demand is to be varied to a smaller sum and has not yet expired, and that it is possible that it might be paid, if not by the company, then by a director. However, the strong case of insolvency arises from the circumstance that underpinning the at first impressive balance sheet - which shows a surplus of assets over liabilities of some $5,000,000 - are investments of about $18,700,000 in other companies in or associated with the Plutus Group; and that, in Synep's objection to the special assessment, it contends on a number of different bases that it should be regarded as having derived no income or having made a loss during the relevant period, because those assets of $18,700,000 are now worth nothing.

46. I appreciate that the defendant says it is constrained from explaining that by the same considerations pertinent to the right to silence to which I have referred in connection with the just and equitable ground; but it seems to me that nothing prevents some explanation being advanced, even as a matter of hypothesis, to show why, consistent with that notice of objection, the $18,700,000 worth of assets should or could still be regarded as worth that much. I do not need to, and do not, decide the point now; but it does seem to me that, as things stand, there is a strong case of insolvency.

47. Synep says that to require it to answer a case of insolvency at this stage would suffer from the same vices, in terms of impinging on its directors’ rights to silence in the criminal proceedings, as would the just and equitable ground. Although I think this is less obviously so than in the case of the just and equitable ground, nonetheless, I am satisfied that it is correct. In this respect, it is important to recognise that the Crown case is one of conspiracy, which will depend on the identification and proof of overt acts, and the drawing of inferences from a wide range of circumstantial evidence. But as counsel for Synep put, at the heart of this is an alleged conspiracy to commit a financial fraud, and what is relied on to prove it includes the participation by Synep and its directors in that conspiracy, through their participation in a number of acts, and receipt of benefits from it.

48. The defence to a proceeding for winding up in insolvency is of course solvency. Insofar as the presumption of insolvency may become available, as it well may upon expiration of the creditor's statutory demand, the defendant will bear the burden of rebutting the presumption of insolvency, and to do so, will have to adduce the "fullest and best evidence" of solvency. That will require, in effect, vouching and verifying its balance sheet. In order to do so, the directors will have to depose to the existence of assets referred to in the balance sheet. Those assets include, as I have said, investments in other entities associated with the Plutus Group (and for that matter, debts due to other entities associated with the Plutus Group).

49. Defence of these proceedings would essentially involve the directors in deposing to the existence of those assets and debts, and thus admitting on oath a connection with other alleged conspirators, and the existence of assets the receipt of which may well be part of the acts relied on by the prosecution in the criminal proceedings. In short, it seems to me that having the directors verify the balance sheet and vouch to the financial position of Synep may well facilitate the proof of the alleged conspiracy against them. That amounts to relevant prejudice.

50. Accordingly, although less clearly and strongly than in the case of the just and equitable ground, I am satisfied that sufficient prejudice would be involved, even if the matter proceeded only on the ground of insolvency, that there should be a stay.

51. It was accepted by Synep that any stay should at this stage be only pending the outcome of committal proceedings, at which stage the matter can be reviewed if necessary. There was also a suggestion, if rather fainter, that the pendency of the Proceeds of Crime Act proceedings was also a ground for a stay, but save insofar as it was suggested that they prevented payment of the debt – a matter to which I have referred in the context of the Corporations Act 459G application – I do not think they can possibly take the matter any further than the criminal proceedings.

Appointment of a provisional liquidator

52. That then brings me to the Deputy Commissioner's application for the appointment of a provisional liquidator. On such an application, the conventional requirements are that there be a seriously arguable case for a winding up order, that there be jeopardy to the assets of the company or other necessity for the appointment of a provisional liquidator, and that the balance of convenience favour the appointment of a provisional liquidator.

53. So far as the first is concerned, I am amply satisfied that there is a seriously arguable case for a winding up order, both on the just and equitable ground and on the ground of insolvency. I have already explained why I consider that there is a strongly arguable case of insolvency, even absent the availability of a presumption of insolvency, and notwithstanding that the special assessment is the subject of dispute. So far as the just and equitable ground is concerned, the matters underpinning it are elaborated at length in the Deputy Commissioner's written submissions, and supported by evidence which has not at this hearing been contradicted or challenged. It is worth noting that while the participation of Synep in the syndicate with a view to not paying or underpaying tax in connection with the Plutus Group would, of itself, provide sufficient ground to conclude that there was a reasonable likelihood of a winding up order being made, that is compounded by its apparent similar role in connection with the Rush Group.

54. The view that a winding up order is likely is also supported by the circumstance that it appears that, on 10 March this year, the directors resolved that they would effectively close down Synep, effective immediately, due to the nature of the assets it purchased and the risks associated with them, and due to the partnership dispute between the shareholders; sell off the assets and pay off all creditors, and divide the proceeds 50/50 between the shareholders; and that the company would be "sold off, cleaned up the books and all creditors paid out, all tax returns to be lodged and audited", and then “MVL (which I take to denote members voluntary liquidation) to be completed”.

55. So far as necessity for an appointment is concerned, the starting point is that the prima facie case involves, as I have said, a conspiracy to commit a serious financial fraud on a large scale. As is the case with applications for freezing orders,[20] sufficient concern that assets are in jeopardy to provide a basis for a freezing order may often be found in the underlying allegations, especially where there is a case of fraud. It is not correct to submit, as Synep did, that at this stage these are merely allegations, and that to act on them would be to convert allegations into finding of fact. They are allegations supported by evidence which, for the purposes of an interlocutory hearing, reaches the stage of at least a seriously arguable case. In those circumstances, I am not merely accepting allegations, but finding that the evidence that supports those allegations is sufficient to amount to a seriously arguable case of conspiracy and/or other conduct which could found a winding up order on the just and equitable ground.

    20. See, for example, Patterson v BTR Engineering (1989) 18 NSWLR 319.

56. It is not the case, as was once suggested, that the company is restrained by the Proceeds of Crime Act order from dealing with its assets, such as they may turn out to be; at least directly, the Proceeds of Crime Act order relates only to the $54,000 in the bank account. It may be that it indirectly captures some other assets of the company, but there is no order under the Proceeds of Crime Act or otherwise which restrains the company from dealing with its assets generally, and although the bail conditions of Messrs Onley and Cranston might, in an indirect way, constrain them from doing so, they do not directly preserve the assets. Shortly before the hearing, the directors proffered an undertaking not to deal with the assets, which goes some way – but only some way – to meeting that concern, given the nature of the seriously arguable case which I have found established.

52. Other important considerations in this respect include that, given my acceptance that there should be a stay of the proceedings, there is likely to be a considerable passage of time until the winding up proceedings are finally heard and determined; that the interests of the company as a whole may well involve the tracing of assets; and that the longer it takes to commence investigations and tracing assets, the more difficult that tracing will become.

53. On the balance of convenience, the company is not trading – so it is not as if any trading activities or employees will be adversely affected by the appointment of a provisional liquidator. Such appointment, being a provisional one, is not irreversible.

54. It was argued that there was nonetheless prejudice in a number of respects, in particular, potential loss of legal professional privilege, potential abandonment of the objection to the special assessment, potential abandonment of a claim which Synep has brought in the Federal Court of Australia against its Directors and Officers insurers, and the potential for vexation through liquidators' examinations of, inter alia, the directors.

55. It is important to bear in mind that the prejudice (or balance of convenience) with which one is concerned at this point is prejudice to the company as a whole, not prejudice to the directors personally. The company as a whole is a concept which focusses on its contributories and its creditors, rather than its directors. The balance between contributories and creditors shifts as insolvency approaches. As I have found prima facie a strong case of insolvency, the interests of the creditors are a very important consideration.

56. In this case, even though the Commissioner is not the only creditor, the other significant creditors include other entities in and associated with the Plutus Group against which in turn, the Commissioner has claims, so that ultimately the present plaintiff is probably by far the person most interested as a creditor. So far as the contributories are concerned, their interests are in maximising the assets of Synep so that the creditors can be paid and so that any surplus can be distributed amongst contributories.

57. As to the concern about privilege, it is conceivable that a provisional liquidator might be asked to waive privilege over communications, which might operate more to the prejudice of the directors in the criminal proceedings than to the prejudice of Synep (although conceivably, it could operate to the prejudice of Synep in the Proceeds of Crime Act proceedings). It seems to me that prima facie the best person to make that decision, particularly given the significance of the interests of creditors in the present context, is an independent provisional liquidator, rather than the liquidators of the other Plutus Group companies who plainly have an interest, or the directors who also have an interest, which might not be consistent with that of the company as a whole.

58. Likewise, so far as the objection to the special assessment is concerned, and any potential review of the Commissioner's decision on that objection, the best person in the present context to decide whether or not that should be pursued would be an independent provisional liquidator. It is of course entirely conceivable that the directors, having their own perspective and interest, may take a view about that objection which is not necessarily consistent with that of the company as a whole, viewed with particular regard to the interest of its creditors.

59. So far as the Directors and Officers insurance claim is concerned, if there is a reasonably arguable claim, then it would seem clearly in the interests of Synep to pursue it, and probably more so in the interests of the directors to do so. Of course, if there is not an arguable claim, then it would not be in Synep's interests to expend funds on pursuing a hopeless claim. Again, one would think that the best person to make that judgment, having regard to all the competing interests, would be a provisional liquidator rather than the present directors.

60. Finally, so far as potential examinations concerned, that really involves more the interests of the directors personally than those of the company as a whole, which may well be advanced by examinations. Whether examinations of the directors should be permitted will itself raise some of the issues that I have adverted to in connection with the right to silence, which will have to be balanced against the specific provisions of the Corporations Act providing for examinations of directors and excluding the right to silence in respect of such examinations.

61. All that said, and while I have come to the conclusion that a provisional liquidator is the best person to make decisions on those issues in a balanced way, I propose to require, as yet an additional precaution, that the provisional liquidator not make decisions of the kind to which I have referred, except in accordance with directions to be obtained from the Court.

62. It was also argued in opposition to the appointment of a provisional liquidator that, effectively for the same reasons as I have accepted on the stay application, the defendant is unable adequately to defend the application for appointment of a provisional liquidator. In my view, those considerations have far less weight in the context of an interlocutory application for a provisional liquidator. That is essentially because on such an application, the case depends primarily on the applicant's prima facie case and whether a seriously arguable case is established, rather than on a total overview of the relative strengths of that case and the defence. The appointment of a provisional liquidator will not prevent Synep from raising such defences to the winding up order as it ultimately may wish to raise, once it is untrammelled by considerations pertaining to the right of silence. In terms of investigating, securing and maximising the assets of the company, in circumstances where it is not trading, no prejudice will be occasioned by the appointment of a provisional liquidator in the meantime.

63. Although the Deputy Commissioner put the appointment of the provisional liquidator as the "price" for a stay if one were to be granted, I do not see it in those terms. Rather, I see the combination of a stay of the proceedings with the appointment of a provisional liquidator, reinforced by the additional conditions that I will impose on the provisional liquidator, as achieving a fair and just balance of the competing interests that are involved in these proceedings.

64. Because of the stay of the proceedings, it will be necessary to extend time for the hearing and determination of the proceedings, under Corporations Act, s 459R. For those reasons, I propose to make orders to the following effect, and I will stand the matter down so that counsel may draft and bring in short minutes of the appropriate orders at a later time today. The orders will be essentially as follows:

1. That Mr Parbury and Mr Livingstone be appointed liquidators of the eleventh defendant provisionally.

2. That the provisional liquidators inquire and report as contemplated in the Deputy Commissioner's written submissions.

3. That the provisional liquidators be directed that they are not, without the leave of the Court or except in accordance with the directions of the Court, to

1. apply for examinations of Mr Cranston or Mr Onley;

2. waive privilege in respect of any privileged communications of the eleventh defendant;

3. discontinue, compromise or otherwise prejudice the Federal Court proceedings or;

4. withdraw or otherwise jeopardise or prejudice the objection to the special assessment or any right to review the decision thereon.

4. Liberty to apply for such directions.

5. Stay the balance of the proceedings pending the outcome of the committal proceedings.

6. Extend time under s 459R.

7. Stand the proceedings, including the application concerning the subpoenas, over to an appropriate date in the New Year, which should also be the date of the 459R extension.

14 December 2017 (Afternoon)

70. In the judgment delivered earlier today, I dealt with three applications: Synep's application under s 459G to set aside the creditor's statutory demand, Synep's application for a stay, and the Deputy Commissioner's application for appointment of a provisional liquidator.

71. Were the costs of each of those to be dealt with as separate and discrete issues, the position seems to me to be as follows.

72. On the s 459G application, Synep had a measure of success in achieving a significant and material reduction in the amount of the demand, but falling well short of full success, because the demand remains on foot still for a substantial sum which will be almost $200,000; moreover, the ground on which success was achieved was not that on which the application was originally and principally advanced. In those circumstances, it could not be said that either party really succeeded or failed on that application, and the appropriate outcome would be that there would be no order as to costs.

73. On the stay application, Synep substantially succeeded. Although the Deputy Commissioner says that the application was not opposed, it was not consented to. Synep was, in other words, required to prove every element of the application, and although it is true that it would not have been relieved of having to make the application had the Deputy Commissioner consented to it, the burden of it would have been significantly reduced. Moreover, the Deputy Commissioner did oppose the application in part, that is so far as it did not relate to the just and equitable ground. In my view, the proper costs order on the stay application standing alone would either be that the Deputy Commissioner pay Synep's costs, or at the very least, that the costs be Synep's costs in the proceedings.

74. On the application for a provisional liquidator, the Deputy Commissioner succeeded, and the conventional position would be, on an application for appointment of a provisional liquidator, that the plaintiff's costs be the plaintiff's costs in the proceedings, or sometimes - in circumstances where there is a robust defence of the application - that the defendant pay the plaintiff's costs of the application.

75. Although Synep submitted that weight should be given to the stay application because most of its evidence was directed to it, I think it is equally correct to say that most of the Deputy Commissioner's evidence was directed to the provisional liquidator application.

76. Having regard to the outcomes of the three different applications, and the undesirability of multiple costs orders which an assessor would then have to sort out and allocate costs between, it seems to me that the proper outcome overall, so far as costs of the applications that I have heard over the last two days are concerned, is that there be no order as to costs.

77. For the reasons given this morning and those reasons, the Court therefore orders that:

1. Pursuant to Corporations Act, s 459H(4), the statutory demand dated 6 November 2017 served by the Deputy Commissioner upon the eleventh defendant be varied by substituting the amount of $196,099.11 for the amount of $559,730.81 where that amount appears in para 1 of the demand and in the schedule to the demand (under the heading "Amount of the Debt"), and declares that the statutory demand has had effect as so varied as from 9 November 2017 when the demand was served upon the eleventh defendant.

2. Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, Stephen James Parbury and Glenn Ian Livingstone be appointed jointly and severally liquidators provisionally of the eleventh defendant Synep Pty Ltd ACN 611 299 328.

3. The provisional liquidators shall, within forty-five days of their appointment, provide to the Court a report as to the provisional liquidation of the eleventh defendant including:

1. the identification of the assets and liabilities of the eleventh defendant;

2. an opinion as to the solvency of the eleventh defendant;

3. the likely return to creditors of the eleventh defendant;

4. any other information necessary to enable the financial position of the eleventh defendant to be assessed.

4. The provisional liquidators must not, except with the leave or in accordance with the directions of the Court:

1. apply to examine Mr Adam Cranston or Mr Jason Onley, the directors of the eleventh defendant, pursuant to Part 5.9 or other provisions of the Corporations Act;

2. waive privilege over any communications of the eleventh defendant;

3. discontinue, compromise or otherwise prejudice any proceedings in the Federal Court of Australia between the eleventh defendant as applicant and Certain Lloyds Underwriters subscribing to agreement number B123016LAW1194 as respondents, subject of Exhibit AX-09 in the proceedings;

4. withdraw, prejudice or otherwise jeopardise the notice of objection against assessment made under the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997, reference number 1-8085R8M lodged by the eleventh defendant with the plaintiff or any right of the eleventh defendant to review the decision made by the plaintiff thereon.

5. The provisional liquidators must notify Mr Adam Cranston and Mr Jason Onley of any decision in relation to the objection referred to at para 4(d) above.

6. The provisional liquidators have liberty to apply for directions pursuant to para 4 above.

7. This proceeding be otherwise stayed until the conclusion of the pending committal proceedings against Jason Onley and Adam Cranston.

8. Pursuant to Corporations Act, s 459R, the time within which the amended originating process must be determined be extended to 5pm on Tuesday 6 February 2018.

9. The proceedings including the interlocutory process filed by Jason Onley on 3 November 2017 be adjourned to 5 February 2018 at 9.45 before the Corporations list judge.

And the Court notes that there is no order as to the costs of the eleventh defendant's interlocutory processes or the plaintiff's interlocutory process heard on 12 and 13 December 2017, to the intent that each party bear its own costs thereof.

78. These orders are to be entered forthwith.

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Endnotes

Amendments

01 June 2018 - Correction to coversheet - counsel's names.

Decision last updated: 01 June 2018